The Mall in the Metaverse: How Blockchain Could Power the Next Generation of Retail

American Eagle’s digital shop in their Roblox universe

What’s Hot?

Brands and retailers haven’t been shy about their aspiration to use blockchains for exciting new applications. Despite all of the noise, we believe a few areas will see the first signs of meaningful commercial traction.

Authentication Via Blockchain

We believe every expensive item sold online will eventually come with a digital twin NFT that serves as proof of ownership and authenticity. Consumers will utilize these digital twins to express ownership online, understand provenance, and facilitate resale of the physical item. Brands and retailers will benefit from a reduction in counterfeit goods and for the first time will be able to participate in an ongoing revenue stream as the resale of their products goes “on-chain”.

Brands such as Louis Vuittion, Breitling, and Bally have begun to roll this out. Every consumer who buys a Breitling watch will get an accompanying NFT (powered by .arianne) and Swiss luxury retailer Bally inaugurated its SS21 collection with a digital twin showroom powered by the Hyphen Group.

Who’s Playing: Aura, .arianee, Boson, Lukso

Representations of Lukso’s blockchain reward offerings: digital tokens, digital certificates, and universal public profiles

Next-Gen Loyalty

The web3 ethos is all about enabling communities to benefit financially from the growth of the platform/communities they help build. Historically brands were built on the back of early customers and advocates, but other than bragging rights, those individuals received nothing in return for the efforts.

Web3 based loyalty programs could change that by rewarding those early advocates with NFTs or tokens that appreciate in value as a brand grows.

Imagine this: an emerging brand rewards early adopters, influencers, and evangelists with brand tokens or NFTs. Not only could these tokens serve as a VIP badge to experience unique events and access limited products, but also enable dividends as the brand generates revenue in the future. It could power a co-op model backed by the trust in the blockchain, not the trust of a co-op brand such as REI or Ace Hardware.

Brands built over the last decade have grown using powerful ad targeting on major platforms like Apple and Google. That era is coming to an end, making a new model for acquisition and loyalty more timely than ever.

Who’s Playing: Rally, Bitski, Boson, Lukso, Glow Labs

Differing payment acceptance options, including crypto, with Rally

Crypto Payment Acceptance

More Americans own crypto than ever before (about 20% of Americans according to Gemini’s 2022 State of Crypto Report), and that number will continue to grow (global crypto users totaled almost 300 million at the end of 2021 and are projected to break one billion by the end of 2022, growth of >330%) These owners will eventually want to use it as a form of payment. This will require payment acceptance at physical and digital merchants — something that has already begun to happen.

Today you can buy a Lamborghini, your groceries at Whole Foods, a latte at Starbucks, and the latest Nintendo game at GameStop using crypto, but at some point crypto will be simple enough that basic purchases of things like a pizza become easy and commonplace (as long as that pizza is less expensive than that very first pizza.)

Who’s Playing: Rally, Flexa, Citcon

A highlight of new songs released on Royal

Smarter Royalties

Artists and creators have long been at the mercy of record labels and tech giant platforms who extract large royalties or revenue shares that eat into artist/creator income streams. They have also had to work with publishers and other middlemen who take additional tolls for allocating royalties in fairly manual processes. The blockchain presents a unique opportunity for crowdfunding and royalty sharing powered by smart contracts on the major blockchains. These functions could replace the work done (and fees collected) by these middlemen. The blockchain could also open up new revenue channels, such as enabling royalties back to an artist as their work passes between collectors. Picasso (or more precisely — his heirs) would have loved a royalty scheme like this!

Today, the music industry has begun to adopt some of blockchain’s capabilities to automate royalties; notably the iconic rapper Nas released a handful of his songs through Royal, a crypto-backed music service that enables smart royalties, and so has even Diplo.

While this technology could be applicable in many creative categories, it will likely first happen with purely digital art (music, digital visual art) where the entire consumption journey can be tracked and accounted for on chain. However, as technologies mature to match physical items to the blockchain, we could see this applicable in a wider variety of categories.

Who’s Playing: Music Benefactors, Royal, Sound Royalties

A fully digital piece from the Fabricant’s collection

Interesting, But Early

Not all blockchain-powered tech is ready for mass adoption today, but that doesn’t mean they aren’t interesting. Below are a few applications of the blockchain for retail that are a bit early, but exciting nonetheless.

Creation of Digital Goods

There has been significant chatter from brands about the creation of digital goods for use in the metaverse. Clinique dropped NFTs, Gucci and SUPERPLASTIC tied together NFTs with Italian sculptures, and mainstream brands like American Eagle are opening their own universes on various gaming platforms.

Despite the early tests in this area, two key factors have slowed the mass adoption of digital goods in the metaverse. First, most metaverse activity is happening in closed game platforms. Second, the more open metaverses envisioned by Facebook and others don’t have the usage volume to justify investment by brands/retailers. While this is all likely to change as gaming platforms open up and open metaverses gain traction, they present significant barriers today.

Who’s Playing: Bitski, BNV, DressX, Obsess, UNXD, xydrobe

Renders of the consumer interface from supply chain provenance player Everledger

Supply Chain Traceability

Supply chain traceability has long been touted as a strong use case for the blockchain. An open ledger that tracks a good throughout its life would have significant value to both consumers who care about provenance and retailers/brands who need to know where a product is (and where it has come from)

However, the challenge of getting each participant in the supply chain to cooperate doesn’t disappear with the use of the blockchain. In fact, the blockchain could introduce new adoption hurdles as participants struggle with reading/writing from the chain. It is for this reason that we don’t see the blockchain gaining widespread adoption for supply chain applications in the near term.

Usage is most likely to start in categories where end customers are focused on sustainability or where the value of authentication is high and trust is low (wine, diamonds, etc.)

Who’s Playing: Everledger, Fishcoin, Provenance, Vechain

Two of the major use cases for marketing, selling, and analytics tools

Marketing, Selling, and Analytics Tools for Digital Goods

Blockchains famously make all transactions publicly accessible on an open ledger. However, anonymization of wallet ownership creates a challenge for the kind of personalized marketing/CRM that we’ve grown accustomed to in web 2. Blockchain applications in digital marketing are still nascent and will continue to be so until we see broader market adoption for crypto and digital goods

Who’s Playing: Adhive, Bitski, Skylight

An image of Clinque’s first NFT drop

So What?

Top Blockchain Applications for Retail

  1. Authentication
  2. Next-Gen Loyalty
  3. Payments Acceptance
  4. Smarter Royalties
  5. Creation of Digital Goods
  6. Supply Chain Traceability
  7. Marketing Data for Digital Goods

Brands and retailers have notoriously leaned away from next-gen tech trends, however we believe the opportunity to benefit from blockchain is too good to pass up.

With Gucci and Balenciaga already doubling down on “full teams” to explore web 3.0 and the metaverse, we think luxury brands will lead the charge for blockchain-related innovation with the rest of the market following shortly behind.

This is just the beginning for retail crossing over to blockchain, and without a doubt beginnings like this cause noise and excitement. The key here is discerning when excitement is actually warranted — here, we think it is.

Want to stay up to date with the latest at Commerce Ventures? Follow us on Twitter @CommerceVC or check out our website commerce.vc.

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